8709 / What is a casualty loss?

Editor’s Note: Under the 2017 tax reform legislation, individuals are no longer entitled to deduct casualty and theft loss expenses as itemized deductions (when those losses are not related to property used in a trade or business). An exception exists for losses that occur in federally declared disaster areas.¹ However, if a taxpayer has personal casualty gains, the new rules do not apply (even if the loss does not occur in a federal disaster area) so long as the losses do not exceed the gains. This essentially means that casualty losses will continue to offset casualty gains.² This provision applies for tax years beginning after December 31, 2017 and before January 1, 2026. The rules outlined below generally apply for tax years beginning before 2018, and for losses that are sustained in a disaster area.

A casualty loss is a loss that an individual taxpayer suffers as a direct result of an event that meets the following criteria:

(1)  It is identifiable;

(2)  It is damaging to property; and